Federal
law does not preempt a claim that a national bank violated state law by
imposing overdraft fees on consumers who used their ATM cards for purchases
that exceeded their available funds, the Fourth District Court of Appeal has
ruled.

In
an opinion by Justice Alex C. McDonald, filed Dec. 29 and certified Thursday
for publication, Div. One reinstated a putative class action against Wells
Fargo Bank by a customer who claimed the bank committed a deceptive business
practice when it failed to properly notify him that he would be subject to the
fees.

The
appellate panel concluded that San Diego Superior Court Judge Ronald Prager
erred in summarily rejecting plaintiff Sean M. Smith claims on preemption
grounds and on the basis of the judge’s conclusion that the bank adequately
disclosed its practices.

Notice
Required

In
opposition to the bank’s motions, Smith presented evidence that the consumer
disclosure statement he received when opening his Wells Fargo account in 1997
required him to abide by all changes in the bank’s fee schedule and required
the bank “to notify the first signer of the account in advance of any such fee
change.”

At
the time, it was Wells Fargo’s practice to decline any ATM card transaction if
there were insufficient funds in the account to cover it. This was in contrast
with the policy regarding paper checks, where the bank retained the option of
honoring the check under an existing overdraft protection agreement with the
customer, honoring the check without an existing agreement and charging the
overdraft fee, or returning the check for insufficient funds and charging an
NSF fee.

Smith
presented evidence that the check policy was extended to point-of-sale
transactions using ATM cards in 2002 after the bank concluded it could earn
between $120 million and $145 million a year from overdraft fees of about $30
on ATM transactions.

The
bank responded that it notified Smith and other customers of the change by
enclosing a notice with monthly account statements in March 2002 and implemented
the new procedures in May of that year, seven months before Smith filed suit.

Smith
alleged that Wells Fargo violated the unfair competition law, the Consumer
Legal Remedies Act, and the false and misleading advertising law by
implementing the change unilaterally and with inadequate notice, and without
allowing cardholders the option of canceling “this overdraft protection though
the amount of the per transaction fee was never requested, agreed to, or
disclosed to the checking account holder[s] when they were provided” with the
card.

OCC
Regulations

McDonald,
writing for the Court of Appeal, said the trial judge was wrong in interpreting
certain regulations of the Office of the Comptroller of the Currency as
preempting state law with respect to Smith’s claims.

While
OCC regulations establish disclosure requirements for changes in fees charged
by national banks, the jurist explained, nothing in the regulations or in the
legislation authorizing them expresses an intent to bar enforcement of state
laws where the state’s requirements do not conflict with those of the OCC.

In
this case, McDonald noted, the plaintiff alleges that the bank violated OCC
regulations and that those violations also constitute unlawful practices under
state statutes, so no conflict exists.

The
justice went on to say that the adequacy of the disclosures is a disputed
factual question that should not have been resolved by summary adjudication.